With less than two hours left in Friday's session, the iShares
MSCI South Korea Capped Index Fund (NYSE:
) easily fits the bill as one ETF that, if
could sport human emotions, is glad this week is drawing to a
EWY, one of the largest country-specific emerging markets with
over $3.1 billion in assets under management, is on pace to
finish the week down 6.3 percent. To be sure, it has been a case
of "pick your poison" with EWY this week.
The largest South Korea ETF has come under heavy selling
pressure amid intensifying threats from North Korea. In recent
days, North Korea has not been shy with its rhetoric regarding
possible military aggression towards South Korea and the U.S.
Investors in South Korean stocks and ETFs have been down this
road before, but it is fair to say North Korea's sharp tongue is
rarely good news for EWY. Arguably a more plausible explanation
for EWY's ills is the weaker Japanese yen.
EWY's vulnerability at the hands of a weaker yen
was highlighted two months ago
, but with the Bank of Japan unveiling more aggressive stimulus
measures on Thursday, investors are once again reminded about
this ETF's vulnerability to a plunging yen.
While talk of South Korean equities being hampered by the
weaker yen has increased in recent days, this scenario is nothing
new and has been playing out for all of 2013. The yen is the
worst-performing developed market currency in the world this year
and that is just how Japanese Prime Minister Shinzo Abe wants
Including today's loss, the CurrencyShares Japanese Yen Trust
) is down about 11 percent year-to-date. EWY has actually
overshot that loss with a year-to-date retrenchment of nearly 15
percent. Said another way, EWY is displaying an intimate negative
correlation to the ProShares UltraShort Yen (NYSE:
), which has surged more than 22 percent this year.
EWY is not the only ETF being hit by weakness in South Korean
stocks. The country is still classified as an emerging market by
some index providers and has a
significant presence in some of the largest
diversified emerging markets ETFs
For example, South Korea has a weight of 14.5 percent in the
iShares MSCI Emerging Markets Index Fund (NYSE:
). EEM is off more than three percent this week and more than
eight percent this year.
Other ETFs being hindered by the plummeting yen include the
$243.6 million iShares S&P Asia 50 Index Fund (NYSE:
), which features an almost 28 percent weight to South Korea.
Samsung is that ETF's largest holding with a weight that is more
than double the second-largest holding (14.3 percent compared to
5.88 percent. AIA, which has been hit by its significant China
exposure, is off nearly six percent this week.
The $2.68 billion iShares MSCI All Country Asia ex Japan Index
) features a 19.1 percent allocation to South Korea and that has
been enough to drag the ETF down more than three percent this
Investors looking to dodge South Korea with diversified
emerging markets ETFs can consider the Vanguard FTSE Emerging
Markets ETF (NYSE:
), which is in the process of paring its exposure to the country,
and the PowerShares S&P Emerging Markets Low Volatility
EELV features a mere 6.5 percent weight to South Korea making
it the ETF's fifth-largest country weight well behind Malaysia,
South Africa, Taiwan and Chile.
For more on ETFs, click
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